Supreme Court Leaves Intact ‘Death Squad’ Patent Board (1)

The U.S. Supreme Court left intact a board that has invalidated more than 2,000 patents, resolving constitutional issues by giving a presidentially appointed official more power to overturn the board’s decisions.

The splintered decision came in a case being closely watched by the technology industry. The court said Congress violated the Constitution when it set up the Patent Trial and Appeal Board, a body that critics dubbed a “death squad” because of its tendency to toss out patents.

Writing the court’s lead opinion, Chief Justice John Roberts said the director of the Patent & Trademark Office will now have power to review and reverse so-called inter partes review decisions by PTAB, as the board is known. He said the agency director isn’t required to review every decision, but must have the discretion to do so.

By saying the director has greater authority over the board’s decisions, the Supreme Court rejected arguments that only Congress could reconfigure the board to pass constitutional muster.

Many of the nation’s largest technology companies, including Apple Inc. and Alphabet Inc.’s Google, back the board as an efficient means of voiding patents that never should have been issued. Apple is counting on agency challenges of VirnetX Holding Corp. patents on secure communications to avoid paying a $503 million jury verdict reached against the company in October.

Some smaller inventors said the board had become an anticompetitive tool for large companies and creates an added level of uncertainty to rights patent owners thought they had received from the agency.

The case centered on the Constitution’s appointments clause, which requires “principal officers” to be nominated by the president and confirmed by the Senate. Roberts said that, in many respects, the judges are inferior officers, “in every respect save the insulation of their decisions from review within the Executive Branch.”

The fact that the board decisions are the “last stop for review within the Executive Branch” means there is not a “transparent decision for which a politically accountable officer must take responsibility,” Roberts said. “The exercise of executive power by inferior officers must at some level be subject to the direction and supervision of an officer nominated by the President and confirmed by the Senate.”

In the case before the court, Arthrex Inc. was challenging a PTAB ruling that invalidated part of a company patent on a surgical device.

The U.S. Court of Appeals for the Federal Circuit, the nation’s top patent court, had ruled that the way to address the constitutional issue was to strip job protections from the judges, a decision that “satisfied no one,” as Roberts said.

Arthrex asked the court to simply toss out the ruling and leave it to Congress to find a way to make the board constitutional. The Trump administration and Smith & Nephew Plc, which challenged the Arthrex patent, said the PTO director already has power over the board, through the ability to select board members and other steps that can influence the outcome.

Justice Clarence Thomas, in dissent, said that the judges are so far down the “hierarchical path” that it’s clear they aren’t principal officers.

“That both the Federal Circuit and this Court would take so much care to ensure that administrative patent judges, appointed as inferior officers, would remain inferior officers at the end of the day suggests that perhaps they were inferior officers to begin with,” Thomas said.

Justice Stephen Breyer, joined by Justices Sonia Sotomayor and Elena Kagan, agreed with the remedy designed by Roberts even though Breyer thought it was “unprecedented and unnecessary.” Breyer said Congress intended for the patent judges to have some independence “given the technical nature of patents, the need for expertise, and the importance of avoiding political interference.”

Justice Neil Gorsuch, a critic of the review board, said the court shouldn’t be engaged in a sort of “legislative séances” to determine Congress’s intent, and that this and past Supreme Court cases over the board highlight “more and more problems with the statute.”

“Alignments between the moneyed and the permanent bureaucracy to advance the narrow interests of the elite are as old as bureaucracy itself,” Gorsuch wrote. “Our decision today represents a very small step back in the right direction by ensuring that the people at least know who’s responsible for supervising this process -- the elected President and his designees.”

The patent office is currently being led by an acting director, Commissioner for Patents Drew Hirshfeld. President Joe Biden hasn’t yet named a permanent replacement for Andrei Iancu, who left office Jan. 20 with the end of the Trump administration.

The case is United States v Arthrex Inc., 19-1434.

(Updates with dissents in 12th paragraph.)

To contact the reporters on this story:
Greg Stohr in Washington at gstohr@bloomberg.net;
Susan Decker in Washington at sdecker1@bloomberg.net

To contact the editors responsible for this story:
Elizabeth Wasserman at ewasserman2@bloomberg.net

Jon Morgan

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